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Nos. 16-17059_________________________
UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT_________________________
THOMAS BINGHAM, Relator, ex rel. United States ofAmerica and Florida,
Qui Tam Plaintiff-Appellant
vs.
HCA, INC.
Defendant-Appellee
_________________________
Appeal from the Honorable Marcia G. CookUnited States District Court Judge
Southern District of Florida, Case No. 13-23671-Civ-MGC_________________________
OPENING BRIEF
Jonathan Kroner, FL Bar No. 328677 Jonathan Kroner Law Office420 Lincoln Road, Suite 248Miami Beach, Florida 33139-3031Telephone: (305) 310-6046Email: [email protected]
Jeremy L. Friedman, CA Bar No. 142659Attorney at Law2801 Sylhowe RoadOakland, CA 94602Telephone: (510) 530-9060Facsimile: (510) 530-9087
Attorney for Qui Tam Plaintiff andAppellant Thomas Bingham
Case: 16-17059 Date Filed: 04/10/2017 Page: 1 of 54
United States ex rel. Bingham v. HCA, Inc., Case No. 16-17059 (CIP 1 of 2)
CERTIFICATE OF INTERESTED PARTIESAND CORPORATE DISCLOSURE
Eleventh Cir. R. 26.1-2(a) list of trial judges, attorneys, and corporations
Ballenger, J. Scott, counsel for Appellee
Bennett, Jill Marie, Assistant Attorney General for the State of Florida
Benson, Phillip E., District Court counsel for Appellant Bingham
Bingham, Thomas, Appellant, Qui Tam Relator
Campbell, Erin M., District Court counsel for Appellant Bingham
Cooke, Hon. Marcia G., United States District Judge
Friedman, Jeremy L., Appellate counsel for Appellant Bingham
Goldberg, Martin B., District Court counsel for Appellee HCA
Hargreaves, Amy E., District Court counsel for Appellee HCA
HCA Holdings, Inc., NYSE ticker HCA
HCA, Inc., Appellee
HCA subsidiaries and affiliates
Aventura Hospital and Medical Center
Centerpoint Medical Center of Independence, LLC
Columbia Hospital Corporation of Miami Beach
HCA East Florida Division
Miami Beach Healthcare Group, Ltd d/b/a Aventura Hospital and Medical
Center
Midwest Division-IRHC, LLC, now known as Centerpoint Medical Center
of Independence, LLC
Helmer, Jr., James B., District Court counsel for Appellant Bingham
Helmer, Martins, Rice & Popham, LLP, District Court counsel for Appellant
Bingham
Appellant’s Opening Brief – Page i
Case: 16-17059 Date Filed: 04/10/2017 Page: 2 of 54
United States ex rel. Bingham v. HCA, Inc., Case No. 16-17059 (CIP 2 of 2)
Housh, Kristin P., District Court counsel for Appellee HCA
Kroner, Jonathan E., counsel for Appellant Bingham
Lash & Goldberg, LLP, counsel for Appellee
Latham & Watkins, LLP, District Court counsel for Appellee HCA
Lauer, Katherine A., District Court counsel for Appellee HCA
Lavine, Mark Alan, Assistant United States Attorney
Oberembt, Laurie A., Senior Trial Counsel, Fraud Section, Civil Division, United
States Department of Justice
Ohta, Jason M., District Court counsel for Appellee HCA
Rice, Robert M., District Court counsel for Appellant Bingham
Torres, Hon. Edwin G. United States Magistrate Judge
Turnoff, Hon. William C., United States Magistrate Judge
Warren | Benson Law Group, District Court counsel for Appellant Bingham
Weintraub, Greg Jason, District Court counsel for Appellee HCA
Appellant’s Opening Brief – Page i
Case: 16-17059 Date Filed: 04/10/2017 Page: 3 of 54
STATEMENT REGARDING ORAL ARGUMENT
Relator Thomas Bingham desires oral argument. This appeal involves three
federal statutes (False Claims Act, Anti-Kickback Statute and Stark law) intended
to protect against fraud on federal funds, a complex factual record of agreements
between a hospital defendant and developers of two medical office buildings, and
multiple points of contentions between the parties. Relator believes oral argument
would aid the Court’s decisional process.
Appellant’s Opening Brief – Page ii
Case: 16-17059 Date Filed: 04/10/2017 Page: 4 of 54
TABLE OF CONTENTS
STATEMENT REGARDING ORAL ARGUMENT ............................................. ii
TABLE OF CONTENTS ........................................................................................ iii
TABLE OF AUTHORITIES ................................................................................ viii
JURISDICTION .................................................................................................. xvii
ISSUES PRESENTED ............................................................................................ 1
STATEMENT OF THE CASE ............................................................................... 1
A. Statutory Background .................................................................................... 1
1. Anti-Kickback Statute ......................................................................... 2
2. Stark Statute ....................................................................................... 4
3. The False Claims Act ......................................................................... 6
B. Background on HCA as Defendant in False Claims Act Cases Involving
Stark and AKS, and as Signatory to Corporate Integrity Agreement .......... 8
C. Background on Relator Bingham .................................................................. 9
D. Procedural History ....................................................................................... 11
E. Dispositions Below ...................................................................................... 15
1. Partial Summary Judgment on Centerpoint Claims .......................... 15
a. The District Court Put the Burden of Disproving HCA’s
Affirmative Defenses On Relator ........................................... 15
b. The District Court Granted Summary Judgment on AKS,
Because HCA “Made Good Business Sense” ....................... 16
c. The District Court Granted Summary Judgment on Stark
Because it Concluded HCA Did Not Intend to Benefit
Physicians or Influence Referrals ........................................... 17
2. Dismissal of Aventura Claims in Second Amended Complaint ....... 18
Appellant’s Opening Brief – Page iii
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F. Statement of the Facts ................................................................................. 19
1. Centerpoint Scheme .......................................................................... 19
2. Aventura Scheme .............................................................................. 22
G. Legal Standards ........................................................................................... 23
SUMMARY OF ARGUMENT ............................................................................. 24
ARGUMENT ......................................................................................................... 25
I. This Court Should Reverse the Grant of Summary Judgment to HCA on
Bingham’s Centerpoint Claims under AKS ............................................... 25
A. Substantial Evidence Supports Bingham’s Prima Facie Case ........ 25
1. Indirect Remuneration Was Paid to Referring Physicians ..... 26
2. One Purpose was to Induce Referrals ..................................... 26
B. There Is No “Good Business Sense” Defense under AKS ............... 28
C. HCA is Unable To Satisfy AKS Safe Harbor Requirements ............ 29
II. This Court Should Reverse the Grant of Summary Judgment to HCA on
Bingham’s Centerpoint Claims under Stark .............................................. 30
A. Stark Requires Proof of Neither Intent nor Inducement .................. 30
B. Elements of Indirect Compensation, Defined in Regulations, Apply to
Exceptions, Not Relator’s Prima Facie Case ................................... 30
C. Substantial Evidence Shows Direct Remuneration, and an Unbroken
Chain of Indirect Payments, to Referring Physicians ....................... 32
D. HCA Took Into Account the Value of Referrals and Other Business
Generated by Physician Tenants ....................................................... 32
E. HCA Had Knowledge of the Financial Relationships It Created ..... 33
F. HCA is Unable To Establish a Stark Office Space Exception ......... 33
Appellant’s Opening Brief – Page iv
Case: 16-17059 Date Filed: 04/10/2017 Page: 6 of 54
III. This Court Should Reverse the Dismissal of Bingham’s Aventura Claims
Pleaded in the Second Amended Complaint ............................................... 34
A. Bingham’s Second Amended Complaint Satisfies Rule 9(b) ........... 34
B. The District Court Erred When It Ignored Facts Alleged in Plaintiff’s
Second Amended Complaint ............................................................ 35
CONCLUSION ...................................................................................................... 40
CERTIFICATE OF COMPLIANCE ..................................................................... 41
CERTIFICATE OF SERVICE .............................................................................. 41
Appellant’s Opening Brief – Page v
Case: 16-17059 Date Filed: 04/10/2017 Page: 7 of 54
TABLE OF AUTHORITIES
Cases
Bryson v. Berges, 2015 U.S. Dist. LEXIS 33517 (S.D. Fla. 2015) ....................... 34
City Bank v. Compass Bank, 717 F. Supp. 2d 599 (W.D. Tex. 2010) ................... 7
Council for Urological Interests v. Sebelius, 946 F. Supp. 2d 91 (D.D.C. 2013) . 4
Delgado v. Lockheed-Ga. Co., Div. of Lockheed Corp., 815 F.2d 641
(11th Cir. 1987) .......................................................................................... 27
Fru-Con Constr. Corp. v. Sacramento Mun. Util. Dist., 2006 U.S. Dist. LEXIS
94421 (E.D. Cal. 2006) ............................................................................... 35
Genentech, Inc. v. Trs. of the Univ. of Pa., 871 F. Supp. 2d 963 (N.D. Cal. 2012) 27
Hopper v. Solvay Pharms., Inc., 588 F.3d 1318 (11th Cir. 2009) ......................... 23
Int’l Stamp Art, Inc. v. United States Postal Serv., 456 F.3d 1270
(11th Cir. 2006) .......................................................................................... 23
John Hancock Mut. Life Ins. Co. v. Harris Tr. & Sav. Bank, 510 U.S. 86 (1993) 31
M.H. v. Cty. of Alameda, 2012 U.S. Dist. LEXIS 168412 (N.D. Cal. 2012) ....... 36
Maale v. Kirchgessner, 2011 U.S. Dist. LEXIS 18506 (S.D. Fla. 2011) .............. 36
McNutt ex rel. United States v. Haleyville Med. Supplies, Inc., 423 F.3d 1256
(11th Cir. 2005) .............................................................................................. 6
Remmes v. Int’l Flavors & Fragrances, Inc., 453 F. Supp. 2d 1058
(N.D. Iowa 2006) ................................................................................................... 35
Shuford v. Fidelity National Prop. & Cas. Ins. Co., 508 F.3d 1337
(11th Cir. 2007) ........................................................................................... 23
Smith v. Lockheed-Martin Corp., 644 F.3d 1321 (11th Cir. 2011) ...................... 27
Standard Oil Co. v. United States, 221 U.S. 1, 57-59 (1911) .............................. 27
United States ex rel. Atkins v. McInteer, 470 F.3d 1350 (11th Cir. 2006) ...... 35, 37
United States ex rel. Baklid-Kunz v. Halifax Hosp. Med. Ctr., 2012 U.S. Dist.
LEXIS 36304 (M.D. Fla. 2012) ........................................................... 30, 31
Appellant’s Opening Brief – Page vi
Case: 16-17059 Date Filed: 04/10/2017 Page: 8 of 54
United States ex rel. Bartlett v. Ashcroft, 39 F. Supp. 3d 656
(W.D. Pa. 2014) ...................................................................... 2, 3, 25, 26, 29
United States ex rel. Bledsoe v. Community Health Systems, 501 F.3d 493
(6th Cir. 2007) (Bledsoe II) ........................................................................ 34
United States ex rel. Branch Consultants, L.L.C. v. Allstate Ins., 782 F. Supp. 2d
248 (E.D. La. 2011) ..................................................................................... 36
United States ex rel. Cairns v. D.S. Med. LLC, 2014 U.S. Dist. LEXIS 157574
(E.D. Mo. 2014) ......................................................................................... 15
United States ex rel. Clausen v. Lab. Corp. of Am., 290 F.3d 1301
(11th Cir. 2002) ............................................................................... 23, 34, 35
United States ex rel. Customs Fraud Investigations, LLC v. Victaulic Co.,
839 F.3d 242 (3d Cir. 2016) ........................................................................ 38
United States ex rel. Gonzalez v. Fresenius Med. Care N. Am., 761 F. Supp. 2d
442 (W.D. Tex. 2010) ................................................................................. 27
United States ex rel. Hartpence v. Kinetic Concepts, Inc., 792 F.3d 1121
(9th Cir. 2015) ............................................................................................ 37
United States ex rel. Karvelas v. Melrose-Wakefield Hosp., 360 F.3d 220
(1st Cir. 2004) .............................................................................................. 35
United States ex rel. Knapp v. Calibre Sys., 2012 U.S. Dist. LEXIS 63456
(C.D. Cal. 2012) .......................................................................................... 35
United States ex rel. Kosenske v. Carlisle HMA, Inc., 554 F.3d 88
(3d Cir. 2009) ........................................................................................... 5, 8
United States ex rel. Matheny v. Medco Health Solutions, 671 F.3d 1217
(11th Cir. 2012) ............................................................................................. 9
United States ex rel. Newsham v. Lockheed Missiles & Space Co., Inc.,
190 F.3d 963 (9th Cir. 1999) ....................................................................... 36
Appellant’s Opening Brief – Page vii
Case: 16-17059 Date Filed: 04/10/2017 Page: 9 of 54
United States ex rel. Rigsby v. State Farm Fire & Cas. Co., 794 F.3d 457
(5th Cir. 2015) ...................................................................................... 36, 38
United States ex rel. Roberts v. QHG of Ind., 1998 U.S. Dist. LEXIS 23512
(N.D. Ind. 1998) ......................................................................................... 37
United States ex rel. Singh v. Bradford Reg'l Med. Ctr., 752 F. Supp. 2d 602
(W.D. Pa. 2010) .................................................................................... 31, 33
United States ex rel. Thompson v. Columbia/HCA Healthcare Corp.,
125 F.3d 899 (5th Cir. 1997) ........................................................................ 4
United States ex rel. Totten v. Bombardier Corp., 286 F.3d 542 (D.C. Cir. 2002) 7
United States ex rel. Wang v. FMC Corp., 975 F.3d 1412 (9th Cir. 1992) .......... 37
United States ex rel. Westmoreland v. Amgen, Inc., 812 F. Supp. 2d 39
(D. Mass. 2011) ....................................................................................... 3, 25
United States ex rel. Wilkins v. United Health Group, Inc., 659 F.3d 295
(3d Cir. 2011) ................................................................................................ 8
United States ex. rel. Drakeford v. Tuomey, 675 F.3d 394
(4th Cir. 2012) .............................................................................. 4, 5, 30, 33
United States ex. rel. Nowak v. Medtronic, Inc., 806 F. Supp. 2d 310
(D. Mass. 2011) .......................................................................................... 25
United States v. Bay State Ambulance & Hosp. Rental Serv., Inc., 874 F.2d 20
(1st Cir. 1989) ................................................................................................ 3
United States v. Borrasi, 639 F.3d 774 (7th Cir. 2011) ......................................... 2
United States v. Cunningham, 54 F.3d 295 (7th Cir. 1995) .................................. 26
United States v. Davis, 132 F.3d 1092 (5th Cir. 1998) .......................................... 2
United States v. Greber, 760 F.2d 68 (3d Cir. 1985) ............................................. 2
United States v. Health Mgmt. Assocs., 591 F. App’x 693 (11th Cir. 2014) .. 23, 34
United States v. Kats, 871 F.2d 105 (9th Cir. 1989) .............................................. 2
United States v. McClatchey, 217 F.3d 823 (10th Cir. 2000) ................................ 2
Appellant’s Opening Brief – Page viii
Case: 16-17059 Date Filed: 04/10/2017 Page: 10 of 54
United States v. Nosrati-Shamloo, 255 F.3d 1290 (11th Cir. 2001) ..................... 26
United States v. Omnicare, Inc., 2013 U.S. Dist. LEXIS 75696
(N.D. Ga. 2013) ........................................................................................... 35
United States v. Patel, 17 F. Supp. 3d 814 (N.D. Ill. 2014) ................................. 25
United States v. Rogan, 459 F. Supp. 2d 692 (N.D. Ill. 2006),
aff’d, 517 F.3d 449 (7th Cir. 2008) ..................................................... 4, 5, 30
United States v. Shaw, 106 F. Supp. 2d 103 (D. Mass. 2000) ................................. 3
Statutes
False Claims Act, 31 U.S.C. §3729 ............................................................... xi, 1, 7
False Claims Act, 31 U.S.C. §3730 .................................................. xi, 7, 11, 18, 36
False Claims Act, 31 U.S.C. §3732(a) ............................................................. xi, 35
Anti-Kickback Statute, 42 U.S.C. §1320a-7b(b) ........................................ 1, 2, 3, 8
Stark Statute, 42 U.S.C. §1395nn ................................................. 1, 4, 5, 30, 31, 33
Patient Protection and Affordable Care Act of 2010, Pub. L. No. 111-148,
§6402(f), 124 Stat. 119 ............................................................................... 23
28 U.S.C. §1291 ...................................................................................................... xi
28 U.S.C. §1331 ...................................................................................................... xi
28 U.S.C. §1345 ...................................................................................................... xi
28 U.S.C. §1359 ...................................................................................................... xi
Florida False Claims Act, Fla. Stat. Ann. §68.081 ................................................ 35
Rules
Federal Rules of Civil Procedure, Rule 8 ............................................................. 12
Federal Rules of Civil Procedure, Rule 9(b) .................. 1, 7, 12, 18, 23, 25, 34-38
Federal Rules of Civil Procedure, Rule 12(b)(6) ............................................. 12, 23
Federal Rules of Civil Procedure, Rule 15 ................................................... 1, 35-37
Appellant’s Opening Brief – Page ix
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Regulations
42 C.F.R. §411.353 ............................................................................................ 5, 30
42 C.F.R. §411.354 ...................................................................................... 6, 31, 32
42 C.F.R. §411.357 ...................................................................................... 6, 31, 32
42 C.F.R. §1001.952 .......................................................................................... 3, 29
Regulatory Guidance
69 Fed. Reg. 32,012 ........................................................................................... 3, 29
70 Fed. Reg. 4858 ............................................................................................. 3, 29
72 Fed. Reg. 38122 .................................................................................................. 9
73 Fed. Reg. 48434 ................................................................................................ 33
Legislative History
H. Rep. No. 95-393, 95th Cong., 1st Sess., 1977 U.S.C.C.A.N. 3039 ............... 2,29
H. Rep. No. 99-660 (1986) ..................................................................................... 7
S. Rep. No. 99-345, at 29, reprinted in 1986 U.S.C.C. ........................................... 7
S. Rep. No. 111-10, 2009 U.S.C.C.A.N. 430 .......................................................... 7
Oversight of the False Claims Act, Hearing Bef. Subcomm. on the Constitution
and Civil Justice, H. Comm. on the Judiciary, 114th Cong. (2016) ............. 7
Other Authority
Brief of the Solicitor General in United States ex rel. Nathan v. Takeda
Pharmaceuticals North America, Inc., No. 12-1349 ................................... 36
Appellant’s Opening Brief – Page x
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JURISDICTION
Subject matter jurisdiction in the district court for this action under the False
Claims Act, 31 U.S.C. §§3729 et seq., is predicated upon 28 U.S.C. §1331 and
§1345, as well as 31 U.S.C. §3730 and §3732(a) and (b); and supplemental
jurisdiction over relator’s claims under the Florida False Claims Act, Fla. Stat.
Ann. §68.081 et seq, is pursuant to 28 U.S.C. §1359.
This appeal is from the Judgment of the district court disposing of all claims
dated November 4, 2016, ECF 203, following entry of an order of dismissal, ECF
202, on October 14, 2016, and an Omnibus Order granting partial summary
judgment, ECF 183, entered on April 11, 2016.
Jurisdiction here over the district court’s judgment is predicated on 28
U.S.C. §1291. Notice of appeal, ECF 204, was timely filed November 10, 2016.
Appellant’s Opening Brief – Page xi
Case: 16-17059 Date Filed: 04/10/2017 Page: 13 of 54
ISSUES PRESENTED
1. Under the Anti-Kickback Statute, Medicare claims by hospitals are
prohibited when the hospital directly or indirectly pays physicians, if
one purpose was to induce referrals. Must HCA be denied summary
judgment, in light of substantial evidence it subsidized Centerpoint
medical office building to induce referrals by physician tenants?
2. Under the Stark Statute, Medicare claims by hospitals are prohibited
when the hospital directly or indirectly pays physicians, unless an
exception applies. Must HCA be denied summary judgment, in light
of substantial evidence of an unbroken chain of remuneration which
took into account the value of referrals and other business for HCA?
3. Under Rule 15 of the Federal Rules of Civil Procedure, the district
court granted leave to file a second amended complaint to supplement
claims involving Aventura Hospital. Did the court err when it ignored
newly pleaded facts and dismissed those claims under Rule 9(b)?
STATEMENT OF THE CASE
A. Statutory Background
Relator Thomas Bingham brings this action in the name of, and on behalf of,
the United States and Florida, pursuant to the qui tam provisions of the federal and
Florida False Claims Acts, 31 U.S.C. §3729 et seq.; Fla. Stat. Ann. §68.081 et seq.
In the second amended complaint, ECF 104, he alleges defendant HCA violated
the Anti-Kickback Statute, 42 U.S.C. §1320a-7b(b) (“AKS”), and Stark Statute, 42
U.S.C. §1395nn (“Stark”), by arranging for compensation to referring physicians at
Centerpoint Medical Center (“Centerpoint”) and Aventura Hospital and Medical
Center (“Aventura”) through subsidies paid to developer/landlords of medical
office buildings at its hospital campuses. Relator seeks to hold HCA liable under
the False Claims Act for claiming Medicare funds in violation of AKS and Stark.
Appellant’s Opening Brief – Page 1
Case: 16-17059 Date Filed: 04/10/2017 Page: 14 of 54
1. Anti-Kickback Statute
AKS was enacted in 1972 to proscribe improper remuneration in the context
of federal health care programs. Among other aspects, the statute makes it a felony
to “knowingly and willfully” offer or pay remuneration in exchange for a referral
of service for which payment may be made under a Federal health care program.”
42 U.S.C. §1320a-7b(b). Remuneration includes “any kickback, bribe or rebate,”
and broadly applies to anything of value provided “directly or indirectly, overtly or
covertly, in cash or in kind.” Id. §1320a-7b(b)(1), (2).
Congress intended AKS to be a critical tool in the fight against health care
fraud. See H. Rep. 95-393, 95th Cong., 1st Sess. at 44, reprinted in 1977
U.S.C.C.A.N. 3039, 3047 (fraud “cheats taxpayers who must ultimately bear the
financial burden of misuse of funds in any government sponsored program”). “The
statute has been broadly interpreted to cover any arrangement where one purpose
of the remuneration is to obtain money for the referral of services or to induce
future referrals.” United States ex rel. Bartlett v. Ashcroft, 39 F. Supp. 3d 656, 676
(W.D. Pa. 2014) (original emphasis). Accord United States v. Greber, 760 F.2d 68,
72 (3d Cir. 1985) (“If the payments were intended to induce ... the statute was
violated, even if the payments were also intended to compensate for professional
services”); United States v. Borrasi, 639 F.3d 774, 782 (7th Cir. 2011) (“Each
circuit to actually reach the issue has rejected the primary motivation theory”);
United States v. McClatchey, 217 F.3d 823, 835 (10th Cir. 2000) (agreeing with
the “sound reasoning in Greber”); United States v. Davis, 132 F.3d 1092, 1094
(5th Cir. 1998) (AKS is violated when benefits extended partially to induce patient
referrals); United States v. Kats, 871 F.2d 105, 108 (9th Cir. 1989) (AKS violated
if “‘one purpose of the payment was to induce future referrals’”).
AKS is violated even when payment is made at fair market value, or when
there exists a legitimate business purpose for the payment. HHS – OIG states:
Appellant’s Opening Brief – Page 2
Case: 16-17059 Date Filed: 04/10/2017 Page: 15 of 54
Importantly, under the anti-kickback statute, neither a legitimatebusiness purpose for the arrangement, nor a fair market valuepayment, will legitimize a payment if there is also an illegal purpose(i.e., inducing Federal health care program business). [70 Fed. Reg.4858, 4864 (Jan. 31, 2005).]
See 69 Fed. Reg. 32,012, 32,018-32,019; Bartlett, 39 F. Supp. 3d at 677.
AKS recognizes certain exclusions – called “safe harbors” – from the broad
definition of “remuneration.” See 42 U.S.C. §1320a-7b(b)(3). These safe harbors
“apply only in very specific instances,” United States v. Shaw, 106 F. Supp. 2d
103, 113 (D. Mass. 2000), to “exempt[] only a small subset of such transactions,”
United States v. Bay State Ambulance & Hosp. Rental Serv., Inc., 874 F.2d 20, 31
(1st Cir. 1989). “To receive protection, a business arrangement must fit squarely
within a safe harbor; substantial compliance is not enough.” United States ex rel.
Westmoreland v. Amgen, Inc., 812 F. Supp. 2d 39, 47 (D. Mass. 2011). See 54 Fed.
Reg. 3088 (“In order for a business arrangement to comply with one of the
exemptions set forth [in the regulations], each provision of that exemption must be
met”). Defendants have the burden of establishing each element of the safe harbor
is met. Westmoreland, 812 F. Supp. 2d at 80; Bartlett, 39 F. Supp. 3d at 676.
Moreover, since the focus is on substance over form, even if “the requisite intent to
willfully or knowingly solicit or offer a kickback is present, formal compliance
with a safe harbor is not sufficient to avoid liability under the Anti-Kickback
Statute.” Westmoreland, 812 F. Supp. 2d at 48.
Relevant here, AKS regulations contain a safe harbor provision for space
rentals. 42 C.F.R. §1001.952(b). To qualify, payments must be (1) “by a lessee to a
lessor for the use of premises,” (2) pursuant to a lease agreement that “is set out in
writing and signed by the parties,” (3) where the “aggregate rental charge is set in
advance,” (4) “is consistent with fair market value in arms-length transactions,” (5)
“is not determined in a manner that takes into account the volume or value of any
referrals or business otherwise generated between the parties for which payment
Appellant’s Opening Brief – Page 3
Case: 16-17059 Date Filed: 04/10/2017 Page: 16 of 54
may be made in whole or in part under Medicare, Medicaid or other Federal health
care programs”; and (6) “does not exceed that which is reasonably necessary to
accomplish the commercially reasonable business purpose of the rental.” Id.
(emphasis supplied).
With respect to “fair market value,” safe harbor regulations state value “shall
not be adjusted to reflect the additional value that one party (either the prospective
lessee or lessor) would attribute to the property as a result of its proximity or
convenience to sources of referrals or business otherwise generated for which
payment may be made in whole or in part under Medicare, Medicaid and all other
Federal health care programs.” Id., at (b)(6) (emphasis supplied).
2. Stark Statute
Congress passed Stark to eliminate the corrupting influence of money on
medical decision-making. Enacted by amendment to the Medicare statute in 1989,
Stark establishes a clear rule the United States will not pay for any “designated
health services” (“DHS”) referred by a physician having a “financial relationship”
with an entity, unless the relationship satisfies an applicable exception. 42 U.S.C.
§§1395nn(a)(1), (g)(1). See United States v. Rogan, 459 F. Supp. 2d 692, 711
(N.D. Ill. 2006), aff’d, 517 F.3d 449 (7th Cir. 2008). “The Stark Law is intended to
prevent ‘overutilization of services by physicians who [stand] to profit from
referring patients to facilities or entities in which they have a financial interest.’”
United States ex. rel. Drakeford v. Tuomey, 675 F.3d 394, 397 (4th Cir. 2012)
(citation omitted). See generally United States ex rel. Thompson v. Columbia/HCA
Healthcare Corp., 125 F.3d 899, 901-02 (5th Cir. 1997) (discussing origins of
Stark); Council for Urological Interests v. Sebelius, 946 F. Supp. 2d 91, 94-95
(D.D.C. 2013) (same).
Stark is a strict liability statute with no scienter requirement. Any amounts
reimbursed by Medicare for services furnished in violation of Stark must be repaid.
Appellant’s Opening Brief – Page 4
Case: 16-17059 Date Filed: 04/10/2017 Page: 17 of 54
See §1395nn(g)(1); 42 C.F.R. §411.353(d); Drakeford, 675 F.3d at 397-98; Rogan,
517 F.3d at 453. Once the United States, or a relator suing on its behalf, proves a
financial relationship exists, defendants bear the burden of proving requirements
for an applicable exception have been met. Drakeford, 675 F.3d at 405; Rogan,
459 F. Supp. 2d at 716.
In the Stark statute, “financial relationship” includes any “compensation
arrangement,” defined as “any arrangement involving any remuneration between a
physician . . . and an entity.” Section 1395nn(h)(1)(A). “Remuneration,” in turn, is
defined in the statute, as “any remuneration, directly or indirectly, overtly or
covertly, in cash or in kind.” Section 1395nn(h)(1)(B).
The statute defines an exception to liability for “rental of office space,”
§1395nn(e)(1)(A), similar to the AKS safe-harbor provision for space rentals. See
United States ex rel. Kosenske v. Carlisle HMA, Inc., 554 F.3d 88, 91 (3d Cir.
2009) (two provisions are “substantially identical”). Among other things, this
exception requires (1) payments be made “for the use of premises,” (2) pursuant to
a lease set out in writing, signed by the parties,” (3) “rental charges ... are set in
advance, are consistent with fair market value,” (4) “are not determined in a
manner that takes into account the volume or value of any referrals or other
business generated between the parties,” and (5) “the lease would be commercially
reasonable even if no referrals were made between the parties” (emphasis added).
In stating other exceptions, the statute uses “directly” or “indirectly,” usually
in conjunction with each other; but for purposes of liability, it makes no distinction
between compensation arrangements. Stark regulations distinguish between the
two types, stating an “indirect compensation arrangement” exists if:
(i) Between the referring physician ... and the entity furnishingDHS there exists an unbroken chain of ... persons or entitiesthat have financial relationships ... between them (that is, eachlink in the chain has either an ownership or investment interestor a compensation arrangement with the preceding link);
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(ii) The referring physician ... receives aggregate compensationfrom the person or entity in the chain with which the physician... has a direct financial relationship that varies with, or takesinto account, the volume or value of referrals or other businessgenerated by the referring physician for the entity furnishingthe DHS, ... [and]
(iii) The entity furnishing DHS has actual knowledge of, or acts inreckless disregard or deliberate ignorance of, the fact that thereferring physician ... receives aggregate compensation thatvaries with, or takes into account, the volume or value ofreferrals or other business generated by the referring physicianfor the entity furnishing the DHS. [42 C.F.R. §411.354(c)(2)(emphasis supplied).]
This regulatory definition is then referenced in the exception for indirect
“financial relationships” in 42 C.F.R. §411.357(p). As stated there, “indirect
compensation arrangements, as defined at §411.354(c)(2)” are excepted, if among
other requirements, (1) the “compensation received by the referring physician ... is
fair market value for services and items actually provided and not determined in
any manner that takes into account the volume or value of referrals or other
business generated by the referring physician for the entity furnishing DHS;” (2)
the “compensation arrangement ... is set out in writing, signed by the parties, and
specifies the services covered by the arrangement;” and (3) the “compensation
arrangement does not violate the anti-kickback statute ... or any Federal or State
law or regulation governing billing or claims submission.”
3. The False Claims Act
“The False Claims Act is the primary law on which the federal government
relies to recover losses caused by fraud.” McNutt ex rel. United States v. Haleyville
Med. Supplies, Inc., 423 F.3d 1256, 1259 (11th Cir. 2005). Known originally as
“Lincoln’s Law,” the Act was passed during the Civil War, providing for damages
and penalties against those who falsely or fraudulently claim federal funds. In
1986, Congress amended the Act, to make it “the Government’s primary litigative
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tool for combating fraud” “in modern times.” S. Rep. No. 99-345, at 2, 1986
U.S.C.C.A.N. 5266. See also H. Rep. No. 99-660, at 18 (1986) (Act “used as the
primary vehicle by the Government for recouping losses suffered through fraud”
and it is “important that it be an effective tool for recouping these losses”).
In 2009, Congress declared the reinvigorated Act “[o]ne of the most
successful tools for combating waste and abuse in Government spending.” S. Rep.
No. 111-10, at 10, 2009 U.S.C.C.A.N. 430, 437. Since 1986, more than $31.1
billion was recovered under the Act from the healthcare industry, “which has seen
an explosion in the size of its government-funded programs, and in the fraud
against them.” See Oversight of the False Claims Act, Hearing Bef. Subcomm. on
the Constit. and Civil Justice, H. Comm. on the Judiciary, 114th Cong. (2016).1
Qui tam provisions, §3730(b), authorize private persons to “stand in the
shoes of the government” and enforce the statute’s proscriptions. This provision “is
a powerful tool that augments the government's limited enforcement resources by
creating a strong financial incentive for private citizens to guard against efforts to
defraud the public fisc.” United States ex rel. Totten v. Bombardier Corp., 286
F.3d 542, 546 (D.C. Cir. 2002).
Under the False Claims Act, damages and penalties are imposed on any
person who “knowingly presents, or causes to be presented, a false or fraudulent
claim for payment or approval” to the United States government, or who
“knowingly makes, uses, or causes to be made or used, a false record or statement
material to a false or fraudulent claim” to the United States, §3729(a)(1)(A) &
(a)(1)(B). “Knowingly” is defined as “actual knowledge,” “reckless disregard,” or
“deliberate ignorance” of the truth or falsity of the information, and the Act
expressly requires “no proof of specific intent to defraud,” §3729(b)(1).
1Statement of Sen. Grassley, Chairman, available in the Senator’s news release athttps://www.grassley.senate.gov/news/news-releases/grassley-false-claims-act-our-most-important-tool-fight-fraud-against-taxpayers.
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Violations of AKS and Stark form the predicate for violations of the False
Claims Act. Because HCA certifies compliance, any misrepresentations in
connection with those certifications rendered false any claims for reimbursement
HCA submitted to federal healthcare programs. See Kosenske, 554 F.3d at 94
(“Falsely certifying compliance with the Stark or Anti-Kickback Acts in
connection with a claim submitted to a federally funded insurance program is
actionable under the FCA”). Moreover, Congress made this link directly in 2010,
when it amended AKS. Adopting the prior view of a majority of circuits, see
United States ex rel. Wilkins v. United Health Group, Inc., 659 F.3d 295, 313-14
(3d Cir. 2011), Congress clarified “a claim that includes items or services resulting
from a violation of this section constitutes a false or fraudulent claim for purposes
of [the False Claims Act].” Patient Protection and Affordable Care Act of 2010,
Pub. L. No. 111-148, §6402(f), 124 Stat. 119 (codified at 42 U.S.C. §1320a-7b(g)).
B. Background on HCA as Defendant in False Claims Act Cases InvolvingStark and AKS, and as Signatory to Corporate Integrity Agreement
HCA is a leading health care services provider, comprised of approximately
165 hospitals and 115 outpatient surgery centers. ECF 85 at 4, ¶15; ECF 104 at 6,
¶15. It owns and operates Centerpoint, located in Independence, Missour., and
Aventura, located in Aventura, Florida. ECF 104 at 9, ¶¶21-24. HCA does not
come into this litigation with a clean slate; it has a long history of sanctions,
penalties and fines for kickbacks, self-referrals and unnecessary medical
procedures. Dating back to its predecessor forms, government entities, qui tam
plaintiffs and others have initiated dozens of civil and criminal prosecutions
against HCA, leading to nearly $2 billion dollars paid in settlements. See ECF 104
at 6-9, ¶¶17-20; ECF 85 at 4, ¶16.
As a result of improper relationships with referring physicians, the United
States in 2000 imposed affirmative obligations on HCA through a Corporate
Integrity Agreement (“CIA”). Until it expired in 2009, the CIA required HCA to:
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< Identify physician relationships with the greatest risk of
noncompliance, including examination of leases of medical office
buildings, see CIA,2 at 87;
< Retain professional independent third-party medical office buildings
managers, who certify compliance requirements, id., at 88;3
< Conduct internal audits of “payments to physicians without
documentation of services rendered,” id.;
< Report annually all physician relationships that constituted reportable
events as determined either by the legal department, the Internal Audit
Department, or a public accounting and/or law firm Independent
Review Organization, id. See ECF 104 at 50-51; ECF 85 at 2, 13.
Failure to satisfy a CIA’s reporting obligation – paired with CIA-mandatory
certifications of compliance – violates the False Claims Act. See United States ex
rel. Matheny v. Medco Health Solutions, 671 F.3d 1217, 1224 (11th Cir. 2012).
C. Background on Relator Bingham
Relator Bingham is a certified real estate appraiser with over 30 years of
experience. ECF 104, at 5-6. Since 2005, relator was employed with Holladay
Properties, one of the country’s largest third party management firms for medical
office buildings. Most of his workload consisted of conducting market rent and fair
market value analyses and studies. Id.
2See Corporate Integrity Agreement Between the Office of Inspector General of theDep’t of Health & Human Servs. and HCA–The Healthcare Company, available athttp://oig.hhs.gov/fraud/cia/agreements/the_hc_co_121400.pdf
3Independent managers are required to sever the hospital control and influence overlease terms, so that remuneration is not paid to referring physicians in the hopes forfuture referrals. “[W]here an entity leases space to a physician at a rental price thatis substantially below fair market value, it may raise the inference that the belowmarket rent was in exchange for future referrals, including referrals made beyondthe expiration of the lease.” 72 Fed. Reg. 38122, 38183.
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While employed at Holladay Properties, Bingham witnessed a scheme by
HCA to circumvent the CIA, and funnel kickbacks to referring physicians at
Parkridge Medical Center, an HCA hospital in Chattanooga TN. See ECF 162-18
at 8, ¶8. Holladay had been hired by HCA to conduct a market rent study on fair
market value for an office space leasing arrangement at a medical office building
(MOB) on the Parkridge campus. When Bingham’s market value study reached
conclusions not to HCA’s liking, the hospital hired Hap Duncan – who is not a
certified appraiser – to arrive at different valuations. When Bingham refused to
compromise his professional responsibilities, HCA terminated its contract. Id.
Applying his personal knowledge and expertise, Bingham concluded HCA
developed a complex scheme to pay and obscure kickbacks and thereby avoid CIA
scrutiny, through complicated financial relationships with physician tenants. After
retaining counsel and conducting his own investigation, he served as relator in a
qui tam action against HCA involving Parkridge, United States ex rel. Bingham v.
HCA, No. 1:08-CV-71 (E.D. Tenn). In that action, the Government partially
intervened, and HCA settled, paying the United States $16.5 million.
While the Tennessee case was pending, Bingham joined claims against HCA
involving a medical office building it subsidized on campus in Largo, FL See ECF
44-1. Bingham learned HCA used a below-market ground lease and free parking
garage with the developer, Greenfield Group, to indirectly remunerate referring
physician tenants. Relator discovered HCA entered into a 99-year ground lease
with Greenfield that was valued at 6-8 times the lump sum payment for the lease.
Greenfield then sold the building at a substantial profit for referring physicians
serving as Greenfield secret limited partners. ECF 104, at 35-36, ¶¶163-170 & nn.
43 & 44. Relator learned Greenfield regularly worked with HCA to develop
medical office buildings, completing between 12 and 15 Florida-based projects
since 1999, including the medical office building at Aventura. Id., ¶171.
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Before terminating its contract, HCA also had Holladay Properties perform a
market rent study on the Centerpoint medical office building, developed through
third party Tegra. ECF 104, at 15, ¶50. Based on his participation as a Holladay
employee, but also upon review of the records, Bingham concluded HCA had
manipulated the Centerpoint market rent study, to cover up lucrative payments to
physician tenants through cash flow agreements. HCA omitted disclosure of the
cash flow agreements when it arranged for the Centerpoint rent study; it obtained a
broker’s price opinion from the same non-appraiser (Hap Duncan) rather than an
actual market study; and it directed a Holladay employee – who did not perform
the study – to alter the study conclusion, after the fact. See ECF 162-2 (testimony
of investigator Doris Modglin), ¶¶8-26; ECF 162-18, ¶¶9, 43, 47-48.
As a result of his investigation, Bingham concluded HCA had entered into
unlawful schemes to remunerate physicians tenants at HCA’s Centerpoint and
Aventura hospitals, directly, and indirectly through third party developers Tegra
and Greenfield, in violation of AKS, Stark, the False Claims Act and the CIA.
D. Procedural History
Bingham filed his initial qui tam complaint under seal, serving the complaint
and disclosure statement on the United States, pursuant to §3730(b)(2). ECF 1.
Relator alleged HCA “purposefully employed a confusing trail of complex real
estate transactions” in the development of a MOB at Aventura, during the “period
in which the [CIA] remained in effect,” resulting in lucrative remuneration to
referring physician tenants in violation of Stark and AKS. Id., ¶2. Although it had a
significant amount of information – including detailed recitations of ground leases
and agreements – the complaint lacked a succinct, narrative statement of facts. See
id., at 12-20. Bingham did, however, articulate HCA’s scheme to subsidize the
Greenfield development, affording sale profits and lucrative parking easements and
rights to referring physicians. Id., ¶¶19, 31-32, 38-40.
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While under seal, Bingham filed a first amended complaint, adding claims
involving physicians at Centerpoint. ECF 14 at ¶¶44-102. He also added
allegations on violations of the CIA, ¶¶144-165; Medicare claims from referring
physician tenants, ¶¶167-192; and corporate knowledge and control, ¶¶200-205.
Relator’s Aventura allegations, ¶¶103-143 – listing much information but lacking
in narrative – remained relatively unchanged. On requests by the United States, the
seal was extended to February 23, 2015, when intervention was declined. ECF 22.
After the first amended complaint was unsealed, relator and HCA jointly
moved for a partial stay of discovery, while the Court resolved HCA’s anticipated
motion to dismiss. Both parties stated they “expect discovery to be extensive and
involve significant volumes of documents,” and both suggested a complex case
track. ECF 32, at 2; ECF 33, at 3; and ECF 36. Judge Cooke denied the stay, struck
the parties’ proposed schedule, assigned the case to a standard track, and set short
deadlines, including fact discovery cutoff 205 days from the date of the scheduling
order. ECF Nos. 34, 35 and 37.
In August 2015, HCA moved to dismiss the amended complaint pursuant to
Rule 12(b)(6) of the Federal Rules of Civil Procedure. HCA argued relator failed to
state Stark or AKS violations, applying Rules 8 and 9(b) pleading standards. In
September, relator opposed the motion, and filed additional records, including the
Aventura ground lease and agreements. ECF Nos. 44, 44-7, 44-8 & 45-1.
While the fully-briefed motion was pending, to meet the district court’s
deadlines, the parties exchanged document requests and engaged in discovery
disputes, providing HCA opportunities to object to the burden of discovery, and to
argue over the adequacy of its responses. E.g., ECF 55, at 5 (HCA opposition to
motion to extend deadlines, on grounds relator “has already received documents
from the two entities involved with development of the Aventura building”); ECF
56, at 6-7 (HCA motion for protective order, to limit scope of discovery); ECF 57-
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4, at 6 (HCA objections to discovery of physician referral data, on the grounds
relator must first establish Stark violation); ECF 62, at 5 (HCA reply on motion for
protective order, seeking to bar discovery into Aventura physician tenants’
interests in Greenfield projects); ECF 68, at 5 (opposing motion to compel
production of records on Greenfield agreements); and ECF 81, at 2 n.1 (opposing
motion related to interrogatories addressing Aventura). Before the magistrate
judge, HCA prevailed on objections to discovery; and before Judge Cooke, HCA
prevailed opposing relator’s motions for relief from the scheduling order. See ECF
70 (denying motion to extend deadlines); ECF 71 (same); ECF 93 (granting HCA
protective order on discovery); ECF 94 (denying relator’s motion to compel).4
On January 28, 2016, the motion to dismiss was granted in part, and denied
in part. ECF 66. Judge Cooke found Bingham’s Centerpoint allegations sufficient.
Under Stark, she addressed whether physician remuneration must vary with the
volume or value of referrals, and concluded Bingham satisfied that standard.
HCA’s argument that Relator failed to plead facts suggesting that anyphysician’s lease rate changed or varied with the amount of referrals itmade to an HCA hospital is flawed in that it misapprehends the issue.As Relator points out, it is impossible to conceive of any defendantfoolish enough to expressly state in a lease agreement that the rentalamount shall change or vary with the amount of referrals made to anHCA hospital. Instead, Relator outlines a much more nuanced schemewherein physician tenants draw a profit that varies with the size oftheir leased office space, which in turn, could plausibly vary based onthe volume or value of patient referrals. [Id., at 10.]5
4On appeal, relator does not assign error to these discovery and scheduling orders.If he prevails, however, discovery would reopen, and Bingham on remand wouldbe entitled to learn of any financial agreements between referring physicians at theAventura medical office building and Greenfield’s many corporate forms.
5With respect to AKS, the court found Bingham’s allegations, “considered as awhole,” presented a scheme to remunerate physicians through “a variety offinancial benefits,” were sufficient to establish “an intent to induce” referrals, anddemonstrated HCA acted “knowingly and willfully.” Id., at 11-12.
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The court dismissed Bingham’s Aventura claims with leave to amend. It
noted relator provided “details regarding a parking easement, lists various
memoranda and declarations filed with Miami-Dade County, and include[d] names
of physician tenants.” But Bingham failed “to fully explain how these facts
interconnect to form a scheme to defraud the United States.” Id., at 13-14.
In footnote 2, the court stated relator tacitly acknowledged the relative lack
of detail he provided, because he cited “to information not included in his
complaint to bolster his argument regarding the sufficiency of his Aventura
allegations” in response to the motion. Id., at 13. At the conclusion, the order read:
As to Relator’s Aventura allegations, Defendant’s Motion to Dismissis GRANTED with leave to amend. If Relator seeks to amend hisFirst Amended Complaint, he must file a Second Amended Complaintwithin seven (7) days of the date of this Order. [Id., at 14.]
On February 11, 2016, HCA filed an answer and affirmative defenses, solely with
respect to the alleged Centerpoint scheme. ECF 85.
Relator intended to amend, timely, but counsel misapplied the rule extending
time after service, and Bingham was required to request relief from the court. See
ECF Nos. 72, 73-1, 74-1 to 74-3, 75-1 to 75-5, 76-1 to 76-8. HCA opposed, in part
arguing relator should not be permitted to amend with information about Aventura
learned through discovery. ECF 79, at 8-12. On March 7, 2016, Judge Cooke
granted the motion, without limitation on the scope of relator’s amendment. ECF
102. Relator then filed his second amended complaint. ECF 104.6
6In light of the protective order, ECF 51, and to avoid a dispute over HCA’sdesignations, relator filed the complaint and exhibits under seal, stating he “doesnot agree with such designations.” ECF 103, at 2. Relator also filed a redactedversion. ECF 105. As set forth more fully in ECF 197, relator contends no judicialrecords in this case should be sealed from the public. Further, contrary to theopinion of the court below, counsel’s redactions do not correspond in fine detail toinformation learned through discovery; and indeed, principal allegations in theredacted version were pleaded in the first amended complaint. See infra, at 39.
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On March 9, 2016, the district ordered parallel track briefings. ECF 113.
HCA thereafter filed a motion for partial summary judgment on Centerpoint, with
supporting pleadings, ECF Nos. 115-118, 120-130; and an “Omnibus Motion to
Dismiss Aventura-Based Allegations and Strike Impermissible Facts,” ECF Nos.
151 & 189. Bingham opposed, filing a motion to strike expert testimony, ECF Nos.
187; opposition to summary judgment, ECF 159, counter statement of facts, ECF
159-1, and exhibits, ECF 162; and opposition to the motion to dismiss, ECF 177.
E. Dispositions Below
1. Partial Summary Judgment on Centerpoint Claims
At the conclusion of oral argument, after a brief recess, Judge Cooke granted
HCA’s motion for partial summary judgment on Centerpoint, making a record of
her decision. ECF 195, at 60:12-63:18. See ECF Nos. 182 & 183.
a. The District Court Put the Burden of Disproving HCA’sAffirmative Defenses On Relator
Although liability boils down to whether HCA is entitled to protections of an
AKS safe harbor or Stark exception – both affirmative defenses – the district court
thought it was deciding issues of relator’s prima facie case. ECF 195, at 60:16-18.
See id., at 44:3-5 (“they don’t have a burden. You have the burden. All they got to
do is show up and answer my questions”). This followed an erroneous argument of
HCA’s counsel that relator had the burden, even on matters of fair market value.
See, e.g., id., at 18:9-11 (“in order to prevail here the Relator really has to show
you that there’s a non-fair market value transaction in both links in the chain”).7
7At the hearing, HCA’s counsel also argued, erroneously, relator was required toprove essential elements of an AKS violation “beyond a reasonable doubt.” Id., at17:9-10. See United States ex rel. Cairns v. D.S. Med. LLC, 2014 U.S. Dist. LEXIS157574, at *2-3 (E.D. Mo. 2014) (following the rulings of other district courts,applying preponderance of evidence standard to civil False Claims Act casespredicated on AKS violations).
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b. The District Court Granted Summary Judgment on AKS,Because HCA “Made Good Business Sense”
Judge Cooke did not address the “one purpose” legal standard under AKS.
Nor did she discuss implications of the CIA’s requirement of audits and disclosure
of financial relationships with physicians. Id., at 49:20-50:6; see supra, at 8-9.
Instead, the judge held no “specific-intent violation” could be established
where HCA had legitimate business reasons for its actions. Id., at 62:8.
Whatever deal there is, whatever benefits, are not between HCA andany doctors. It's between HCA and Tegra, wanting to get a buildingbuilt, that was in the regular course of their business judgment andthey should be allowed to make it. [Id., at 62:20-24.]
This too was urged by HCA’s counsel. See id., at 19:22-20:1 (“the fact that the
hospital does something that it hopes and expects will result in referrals, is not a
violation of [AKS] so long as there’s legitimate business reasons for the
arrangement that don’t have anything to do with the referrals”).
To Judge Cooke, “it makes good business sense to have doctors located near
a medical facility,” precisely because of the referrals. Id., at 20:5-6. One colloquy
between Bingham’s trial counsel and the judge is particularly revealing:
[MR. KRONER:] HCA put many millions into this building.Why? What was HCA’s motivation to put money -- to putmillions and millions of dollars into this building?
THE COURT: Because they wanted to have doctors close bywho would give them referrals.
MR. KRONER: Exactly.
THE COURT: But that’s not a violation of the statute.
MR. KRONER: Well, we -- we disagree.
THE COURT: I mean, HCA -- HCA has decided whetherthere’s buildings close or far that it’s a good business decision... [Id., at 46:8-18.]
Absent evidence of “non-fair market value of the rent,” “condition benefit” for sale
profits; “physicians [] pressured to refer” or referrals “contrary to any sort of
medical judgment,” the court below granted summary judgment. Id., at 63:1-5.
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c. The District Court Granted Summary Judgment on StarkBecause it Concluded HCA Did Not Intend to BenefitPhysicians or Influence Referrals
With respect to Stark, the court approached its decision from the framework
of the regulatory exception for indirect compensation arrangements. At the first
step, it found an “unbroken chain” of financial relationships between HCA and
referring physicians. Id., at 61:8-11. But at the second step, the court stated:
Does the compensation, the link in the chain closest to physician varywith or take into account the volume or value of the referrals fromHCA?
The answer’s no. [Id., at 61:12-15.]
In explaining her understanding of the inquiry, Judge Cooke rejected what
she described as an inference relator had purportedly requested, that “a good deal
for Tegra and the development of this space” must have “benefitted the doctors and
the relationship between HCA and the physicians.” Id., at 61:16-21. Earlier, she
explained this view as an assumption Stark requires proof of inducement:
But don't you have to relate back in some way the inducements to thefact that the referrals were increased based upon the inducement torent? And is there evidence of somehow the volume, nature, quantity,size of the referrals increasing because of the inducement?8
Then, based on a misunderstanding of a defense exhibit,9 without citation to
specific evidence, the court concluded HCA was entitled to summary judgment:
the record shows that the level of referrals for the individual doctors inthis case was way less than 15 percent, so there was no reason forHCA to say that there was some intent on their part to influence theserental agreements or these relationships in any way. [Id., at 62:1-4.]
8Id., at 39:21-25. See also id., at 47:1-10 (“I would agree ... HCA gave Tegra agreat deal ... because they wanted to have a medical office building on theirproperty. But there's no ... Tinkers-to-Evers- to-Chance connection ... such that itinfluenced the doctors”).
9Page 4 of HCA’s demonstrative exhibit listed “cash flow payouts” to referringphysicians, expressed as a percentage of their total rent. Judge Cooke mistakenlybelieved the exhibit stated Medicare referral rates. See id., at 40:7-19, 42:12-19.
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2. Dismissal of Aventura Claims in Second Amended Complaint
Without oral argument, Judge Cooke dismissed Bingham’s Aventura claims.
ECF 202. Although she previously granted leave, twice, to file a second amended
complaint and thus supplement allegations, her recitation of facts relating to
Aventura copies directly from her prior ruling on the first amended complaint.
Compare ECF 202, at 1-4, with ECF 66, at 6-8. Bingham’s actual second amended
complaint, ECF 104, was mentioned only in a footnote. ECF 202, at 1-2 n.1.
As it explained, the court ignored facts alleged in the second amended
complaint, because Bingham purportedly learned them through discovery on HCA.
Id., at 7-8. Holding the Act “grants a right of action to private citizens if they have
independently-obtained knowledge of fraud on the government,”10 the court
deemed it “impermissible” for Bingham to plead facts he did not know when he
filed his first amended complaint. Id. (emphasis supplied). Several courts have
declined to relax Rule 9(b) standards to allow discovery on deficient complaints,
but Judge Cooke became the first in the country to hold a relator is precluded under
Rule 9(b) from pleading facts already known and obtained through discovery.
In dismissing the first amended complaint, Judge Cooke noted Bingham had
additional information to supplement his pleadings, but in her order of dismissal,
none of that information was considered. Nor did the judge distinguish between
information learned through HCA and information learned in the government’s
investigation. Instead, she assumed relator’s over-redacted complaint, ECF 105,
represented the extent to which relator could plead his Aventura claims without
relying on information that was learned through discovery on HCA. See infra at 39
(addressing overlap between first and second amended complaints on core facts).
10Citing §3730(e)(4)(B), the “original source” exception to a public disclosure bar.As amended, the bar excepts a relator “who has knowledge that is independent ofand materially adds to the publicly disclosed allegations or transactions.”
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F. Statement of the Facts
1. Centerpoint Scheme
In September 2004, HCA planned a replacement hospital and medical office
building (“MOB”) in Independence, Missouri. From the outset, HCA intended to
increase hospital utilization, and thus increase claims on federal health programs,
by passing remuneration to referring physicians who would lease MOB space. ECF
117, Exh. 1, at 29136-37. HCA intended to finance and subsidize the developer
Tegra, but it hid those costs “off-balance-sheet.” Id., at 29133, 29145. Disclosure
could have triggered scrutiny under the CIA. ECF 104, ¶¶ 250-256.11
In June 2005, HCA and Tegra entered into: an unrecorded 99-year ground
lease, which included a parking easement of 9.5 acres, for $1.78 million; and a
development agreement, ECF 14-8, which required HCA to subsidize the MOB
with parking maintenance and space leases. ECF 104, ¶¶50-56, 92. Agreement on
the lease price had already been reached “early on.” ECF 162-19, at 36:22–37:5.
From day one, HCA planned for Tegra to pay sale profits to physicians
through “cash flow” agreements. ECF 118, Exh. 8, at 46:1-47:4. HCA controlled
who was allowed in, and thus which physician groups economically beneficial to
HCA would profit. Tegra manager Matt Jensen wrote:
For the past few months we have been working closely with DanaPosey, the [HCA] physician services director, to make sure that we areonly pursuing those physicians that benefit the hospitaleconomically. In doing this, we have been somewhat selective withthose with whom we have discussed the building. As we moveforward with the project, we will likely need to broaden our view andinclude more physicians into this contact pool. At the same time, wewill continue working with Dana to assure that the hospitalapproves of those will be occupying space in the building.” [ECF 122, Exh. 18, at 2983 (emphasis supplied).]
11Tom Ramsey, HCA’s senior real estate consultant, testified independentappraisals were required of the financial relationships under the CIA. ECF 162-3,at 112:2-5. He agreed “intended tenants mostly were going to be physicians whomostly would be referral sources.” Id., at 18:14-19:18, 163:8-15.
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Jensen listed the physician groups “that benefit [HCA] economically” and reported
discussions with physician interest in “ownership,” even though no physician
investment was contemplated. Id., at 2985. Jensen used spreadsheets – showing
projected tenant profits upon sale of the MOB – in sales pitches to potential
physician group tenants. ECF 162-19, at 138:19-140:5.12
HCA funded Tegra with subsidies, well above the value of $1.78 million
paid for the lease. Fair market value, including the parking easement, was $4.38
million. ECF 162-1. HCA also rented space it never intended to occupy, through
“burn-off” leases, obligating HCA to pay up to $8.37 million, and ensuring strong
and positive cash flow. These leases added an estimated $1.4 million to the deal.
ECF Nos 162-3, at 52:6-21; 162-3; 162-4; 162-5 and 162-18, at ¶28.
HCA subsidized Tegra in several other ways. HCA provided maintenance
after burn-off leases expired, ECF 162-19, at 50:12-50:14. It paid for grading,
paving and parking lot improvements, city-mandated landscaping and subsequent
maintenance, and off-site street access. ECF 118, Exh. 9, at 28961-62, 28965-66.
Under the terms of project approval, HCA was to “be fully reimbursed by the
developer” for these off-balance-sheet subsidies, ECF 117, Exh. 1, at 29139, but no
record exists any of these costs were repaid.
Tegra, in turn, paid significant remuneration to referring physician tenants.
First, the proposed lease rate was “at the low end of the new construction market
rates.” ECF 122, Exh. 18, at 2982. More significantly, physicians with cash flow
agreements were paid immense sums after the MOB and parking easement sold in
2012 for $50 million. Physician tenants were paid $7.82 million in sale profits,
with a list of payoffs that closely tracks physicians thought from the start would
“benefit [HCA] economically”. Compare id., at 2985, with ECF 162-10.
12Emails between Tegra and HCA’s lawyers, often copied to Ramsey, show HCAdirected the terms and conditions of the Cash Flow Participation Agreements. ECFNos. 162-7 & 162-11; ECF 162-18, ¶37 (citing records of discussions).
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HCA also arranged for direct non-cash remuneration to physicians. MOB
leases contained special use restrictions; but HCA granted waivers at no charge, so
referring physicians could use restricted equipment, and make more money. ECF
162-15. Similarly, HCA paid for improvements to “burn-off” lease offices it never
intended to occupy, and then turned them over to referring physicians at no fee,
saving them the cost of improvements. ECF 162-18, at 14-16, ¶32.
MOB physician tenants referred patients to HCA for DHS, leading to more
than 154,000 claims on federal health programs and the payment to HCA of over
$370 million in federal funds. ECF 162-17, at ¶6.
From the start, HCA not only knew what it was doing, it knew that what it
was doing complied with neither the law nor the CIA.13 In December 2004, HCA
lawyer Barrett Sutton advised: “Obviously, no physician investors is the safest
approach from a regulatory point of view.” ECF 162-7, at 1. HCA went ahead with
plans anyways, since “this deal started with intention of having [physician]
investors.” Id. In early 2005, Tegra became nervous about its own exposure, in the
event the “off-balance sheet” finances were put back on. Internally, HCA admitted
to using Tegra to enter into financial relationships with referring physician tenants,
because it could not “do it.” ECF 162-5, at 2 (“As we could not do it, MD
participation was a major reason we invited [Tegra] to this location”).14
13In light of HCA’s “regulatory problems,” executives were “very thoroughlyschooled” on compliance requirements. ECF 162-3, at 17:17-18:12.
14Rather than conduct an appraisal – as required – HCA conducted a fraudulent,non-appraisal “market rent study,” without disclosing the cash flow agreements.See ECF 162-2; supra, at 11. After the fact, Sutton described the inaccuracies ofthe study – which had already been signed, altered and re-signed – and said itwould be better to call the sale profit pay-outs “distributable cash.” ECF 162-7, at40. See also ECF 162-6, at 70-74, 78-80, 83-87, 96-97 (HCA rent study not anappraisal, did not consider parking improvements, burn off leases or cash flow);ECF 162-9, at 139-141, 158-159 (Holladay partner describing value of burn-offlease and previous case of HCA pressuring Bingham to alter rent study).
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2. Aventura Scheme
In 2004, HCA planned to build a MOB at Aventura. ECF 104, ¶110. From
the outset, it intended to use low lease rates and target “A-list” physician groups
who would refer patients to Aventura. Id., ¶¶111-120.15 HCA financed and
subsidized Greenfield, the developer, through a ground lease and development
agreement. Initially, HCA conveyed the ground lease for $1, a parking easement at
no cost, a “sponsorship” agreement, a lease agreement (for more than 20% of the
building’s rentable space) and a guarantee. Id., ¶124.
In 2005, the lease price was increased to $1,875,000, but HCA allowed
Greenfield to defer payment. Id., ¶¶128-131. Even if Greenfield paid up front, it
was grossly under market, taking into account land value, parking rights, use
restrictions and obligations in the development agreement. Id., ¶¶133-145.16 In
2007, Greenfield sold the MOB, leasehold interest, and parking easements for
approximately $25.4 million. Id., ¶145. Based on substantial information – set
forth in the operative pleading – Bingham believes, and therefore alleges, profits
were paid to physician tenants who partnered with Greenfield. Id. ¶¶162-177.
In addition to indirect payments through Greenfield, HCA provided direct
remuneration to referring physician tenants. This included free parking rights and
benefits, id., ¶¶178-197; below market rents – with even lower rates and higher
improvement allowances for higher volume referrers, id., ¶¶198-220; subsidized
common area maintenance, id., ¶¶221-233; and use permissions at no charge, id.,
¶¶234-246. All these measures were designed by HCA executives at headquarters,
and were contrary to CIA obligations and certifications. Id., ¶¶247-269, 308-316.
15A reason for the Aventura MOB was to “fill it full of physicians who referpatients to the hospital.” ECF 162-16, at 36:6-15. See ECF 104, ¶¶155-161.
16HCA’s sponsorship agreement – developed by the same HCA executives activein the Centerpoint and Largo schemes – required HCA to provide financial supportfor MOB rents, guaranteeing a profit on sale. Id., ¶¶146-154).
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G. Legal Standards
Rulings below granting summary judgment on Centerpoint claims and
dismissing Aventura claims under Rule 12(b)(6) are reviewed here de novo.
Shuford v. Fidelity National Prop. & Cas. Ins. Co., 508 F.3d 1337, 1341 (11th Cir.
2007); Int’l Stamp Art, Inc. v. United States Postal Serv., 456 F.3d 1270, 1273
(11th Cir. 2006) (per curiam); United States ex rel. Clausen v. Lab. Corp. of Am.,
290 F.3d 1301, 1307 n.11 (11th Cir. 2002).
“Summary judgment is appropriate ‘if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law.’ Once the moving party has properly
supported its motion for summary judgment, the burden shifts to the nonmoving
party to ‘come forward with specific facts showing that there is a genuine issue for
trial.’” Int’l Stamp Art, 456 F.3d at 1273-1274 (citations omitted). Where, as here,
the “movant bears the burden of proof on an issue, because, as a defendant, it is
asserting an affirmative defense, it must establish that there is no genuine issue of
material fact as to any element of that defense.” Id.
Under Rule 12(b)(6), the Court accepts as true facts alleged in the operative
complaint. Clausen, 290 F.3d at 1303 n.2. Rule 9(b) requires “circumstances
constituting fraud” be stated with particularity. Relator satisfies Rule 9(b) if the
complaint sets forth “facts as to time, place, and substance of [HCA’s] alleged
fraud, specifically the details of the [HCA’s] allegedly fraudulent acts, when they
occurred, and who engaged in them.” Hopper v. Solvay Pharms., Inc., 588 F.3d
1318, 1324 (11th Cir. 2009). Where, as here, type of fraud alleged does not depend
on medical or billing content in particular claim forms, Rule 9(b) focus is on the
acts giving rise to the tainted health care claims. See United States v. Health Mgmt.
Assocs., 591 F. App’x 693, 703-05 (11th Cir. 2014).
Appellant’s Opening Brief – Page 23
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SUMMARY OF ARGUMENT
This Court should reverse summary judgment under AKS. Below, the court
erred when it required relator to negate fair market value, show bribes influenced
referrals, and prove referrals against medical judgment. Sufficient record evidence
exists for a jury to find HCA knowingly paid direct and indirect remuneration –
including low-end rents, improved offices, restricted use waivers and huge sale
profits – with the intent to induce future referrals from physician tenants.
Inducement was one purpose of the remuneration scheme. Bingham
establishes wrongful intent through inference from circumstances, with direct
statements, and by the fact HCA knowingly circumvented the Corporate Integrity
Agreement. Judge Cooke’s “one good business reason” defense turns the “one
purpose” doctrine on its head. HCA cannot rely on an AKS safe harbor. Physician
payments were not pursuant to a lease for use of premises, signed by the parties,
set in advance, consistent with fair market value, or determined in a way that did
not reflect the value HCA placed on physician tenant business. Without a safe
harbor, in light of record evidence on Bingham’s prima facie case, it was error to
grant summary judgment to HCA under AKS.
This Court should also reverse summary judgment under Stark. Again, the
court below erred on the law: neither intent nor inducement are elements of the
law. Bingham readily meets prima facie burdens, by proving the financial
relationships between HCA and physician tenants. Based on statutory text, as well
as the logic and structure of the regulations, this Court should hold HCA has the
burden of proving an indirect compensation exception. Here, substantial evidence
shows an “unbroken chain” of payments, which were based on HCA’s subjective
valuation of the business that would be generated by MOB physician tenants.
Finally, this Court should reverse dismissal of Aventura claims. Bingham’s
second amended complaint satisfies the “nuanced, case by case” approach in this
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Circuit to Rule 9(b). Applying the Rule, no court other than the one below has ever
ignored pleaded facts because information was learned through discovery. Some
courts decline to relax Rule 9(b) to allow discovery on a deficient complaint, but
courts that have considered Judge Cooke’s rule, have rejected it.
Allowing parties to amend based on information obtained through discovery
is common and well established. Judge Cooke here declined to stay discovery,
requiring relator to redouble pre-trial efforts, and expressly granted leave, twice, to
supplement the allegations. No basis exists in the text of the False Claims Act or
purposes of federal rules to bar pleading of discovered facts. Indeed, to limit a
relator’s ability to amend to meet Rule 9(b) would the Act. Here, Bingham was
able to plead essential facts of the Aventura scheme on information known to him
when he filed his First Amended Complaint.
In sum, it is not a “fishing expedition” with the catch already on the hook.
ARGUMENT
I. This Court Should Reverse the Grant of Summary Judgment to HCAon Bingham’s Centerpoint Claims under AKS
A. Substantial Evidence Supports Bingham’s Prima Facie Case
Under AKS, the court below assigned Bingham prima facie responsibilities
to negate fair market value, to show bribes in fact influenced referring physicians,
and to prove referrals were against medical judgment. None of these factors is part
of the United States’ prima facie burdens. See Westmoreland, 812 F. Supp. 2d at
80 (burden of proof on safe harbor protection lies with defendant) ; Bartlett, 39 F.
Supp. 3d at 676 (same); United States v. Patel, 17 F. Supp. 3d 814, 830 (N.D. Ill.
2014) (“Whether the physician’s judgment is actually compromised or costs to
Medicare are actually increased in a particular instance is irrelevant”); United
States ex. rel. Nowak v. Medtronic, Inc., 806 F. Supp. 2d 310, 354 (D. Mass. 2011)
(distinguishing AKS from medical device context, where “individual health care
provider’s medical judgment is an essential element”).
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Applying correct standards, Bingham provides more than sufficient evidence
for a jury to find HCA knowingly and willingly offered and paid remuneration to
physician tenants at Centerpoint, with intent to induce referrals.
1. Indirect Remuneration Was Paid to Referring Physicians
Substantial evidence demonstrates HCA paid indirect compensation to
referring physician tenants. It financed and subsidized the MOB, adding millions
of dollars in value through “burn-off” leases and parking rights. Through Tegra, it
arranged for referring physicians to get low-end rents, improved offices, restricted
use waivers and huge payments of sale profits. Judge Cooke found this evidence
sufficient to demonstrate an “unbroken chain” of remuneration between doctors
and HCA under Stark. ECF 195, at 61:8-11. Ignoring prohibition against indirect
compensation, however, she failed to see the inevitable, if routine, sad lexicon of
“Tinkers-to-Evers-to-Chance.” Id. 47:1-10.
2. One Purpose was to Induce Referrals
Substantial evidence demonstrates one purpose of the remuneration scheme
was to induce future referrals to HCA’s Centerpoint hospital. In her prior ruling,
Judge Cooke found Bingham’s allegations sufficient to establish HCA acted
“knowingly and willfully,” with “an intent to induce” referrals. ECF 66, at 11-12.
Those same allegations received overwhelming evidentiary support, sufficient to
resist summary judgment. See Bartlett, 39 F. Supp. 3d at 676 (AKS covers “any
arrangement where one purpose of the remuneration is to obtain money for the
referral of services or to induce future referrals”) (original emphasis); supra, at 2.
In this case, HCA’s wrongful intent is established in three ways. First,
circumstances overwhelmingly point in that direction. Wrongful intent “often must
be inferred from circumstantial evidence.” United States v. Nosrati-Shamloo, 255
F.3d 1290, 1292 (11th Cir. 2001). “Juries may use common sense to evaluate the
evidence and make reasonable inferences from it.” United States v. Cunningham,
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54 F.3d 295, 299 (7th Cir. 1995). See United States ex rel. Gonzalez v. Fresenius
Med. Care N. Am., 761 F. Supp. 2d 442, 456 (W.D. Tex. 2010).17
With HCA’s approval, Tegra offered and paid doctors a share of the cash
flow, including sale profits. HCA provided Tegra with excess funds and subsidies,
well above market value. It knew from every dollar added to Tegra’s cash flow, a
percentage would be paid to physician tenants. In turn, MOB physician tenants
referred more than 154,000 claims, leading to over $370 million in federal funds.
Even Judge Cooke was convinced by the logic of these circumstances.
Answering counsel’s query as to HCA’s motivation for putting “millions and
millions of dollars into this building,” the court stated: “Because they wanted to
have doctors close by who would give them referrals.” ECF 195, at 46:8-12.
Second, HCA’s own documents provide direct evidence of its intent to
induce future referrals. In its project approval memorandum, the hospital’s
development was discussed hand-in-hand with MOB’s development. ECF 117,
Exh. 1, at 29138. Utilization projections were based on the additional medical
groups that would move into the MOB and refer patients. Id., at 29136. To meet
“Volume and Financial Assumptions,” HCA required “admissions” (i.e. referrals).
Id., at 29148. Under the heading Volume and Financial Assumptions, HCA wrote:
“a substantial time and effort will be made to redirect physician splitters to the new
facility from St. Mary’s Hospital of Blue Springs.” Id.
17Courts infer wrongful intent from circumstances in other contexts. Genentech,Inc. v. Trs. of the Univ. of Pa., 871 F. Supp. 2d 963, 976-77 (N.D. Cal. 2012)(intent to induce patent infringement); City Bank v. Compass Bank, 717 F. Supp.2d 599, 622-23 (W.D. Tex. 2010) (intent to induce contract breach); Smith v.Lockheed-Martin Corp., 644 F.3d 1321, 1328 (11th Cir. 2011) (discriminatoryintent); Delgado v. Lockheed-Ga. Co., Div. of Lockheed Corp., 815 F.2d 641, 644(11th Cir. 1987) (same); Standard Oil Co. v. United States, 221 U.S. 1, 57-59(1911) (“intent to do wrong” under common law).
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Records also show intent to fill the MOB full of referring physicians. HCA
considered cash flow participation agreements to be tenant “inducements.” ECF
162-3, at 18:14-19:18, 163:8-15; ECF 162-7, at 35. An HCA executive admitted
this purpose in reference to Aventura. ECF 162-16, at 36:6-15. HCA retained
approval rights over MOB tenants, and ensured only groups who “benefit the
hospital economically” were given the inducements. ECF 122, Exh. 18, at 2983.
On this record of direct evidence, a jury could find an unlawful purposes.
Third, when it built the MOB “off-balance sheet,” its CIA required audits
and independent property managers. Because “this deal started with intention of
having” physician investors, against the advise of its lawyers, HCA still arranged
for doctors to enjoy cash flow from the subsidized MOB. ECF 162-7, at 1. HCA
failed to disclose terms of these agreements to Holladay for appraisal. ECF 162-2.
In sum, evidence of HCA’s actions, taken while the hospital was governed by the
CIA, is sufficient for a jury to find “knowing and willful” violations of AKS.
B. There Is No “Good Business Sense” Defense under AKS
Judge Cooke flipped the “one purpose” doctrine on its head. She agreed
HCA gave Tegra a great deal, to get doctors close who would refer patients, but
concluded “that was in the regular course of their business judgment and they
should be allowed to make it.” ECF 195, at 62:20-24. To Judge Cooke, if it “makes
good business sense” it does not violate AKS. Id., at 20:5-6, 37:11-12; 46:8-18.
Thus, according to the court below, one unlawful purpose is insufficient to violate
AKS, and one good purpose is a defense.
Not only does the district court’s rule overturn the “one purpose” doctrine, it
comes to the inquiry from the wrong perspective. According to Judge Cooke, it
made good business sense to build the MOB – like one might want a Target or
McDonald’s nearby, to “get business.” Id., at 19:6-18. But of course, it is not
HCA’s point of view that counts. An AKS violation “cheats taxpayers who must
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ultimately bear the financial burden.” H. Rep. 95-393, 95th Cong., 1st Sess. at 44.
Whether or not it makes money – and therefore makes “good business sense” – to
pay bribes and kickbacks, and therefore “get business,” it is a violation of AKS,
and fraud to claim federal and state program dollars knowing that to be the case.18
C. HCA is Unable To Satisfy AKS Safe Harbor Requirements
To the extent there were legitimate business reasons or fair market value
transactions, HCA must satisfy all of the requirements of the AKS safe harbor for
space rentals, 42 C.F.R. §1001.952(b). Viewing evidence in light favorable to
relator and placing the burden of proof on HCA, the hospital fails in many respects.
< Payments must be pursuant to a lease agreement, “by a lessee to
a lessor for the use of premises.” Here, cash flow agreements
were not leases for use of the premises, they were separate,
severable financial conveyances of interests in the building’s
“operating cash flow.” On their face, they state they are not
“part of the Lease Agreement.” ECF 14-1, at 1.
< Payments must be under a lease agreement that “is set out in
writing and signed by the parties.” Here, Tegra and many
doctors did not sign the cash flow agreements at the time they
entered their leases. ECF 162-19, at 138:4-139:19.
< Aggregate rental charges must be “set in advance” and
“consistent with fair market value in arms-length transactions.”
Here, cash flow payments were not set in advance. ECF 122,
18Judge Cooke’s determination that “physicians did not receive anything other thanfair market value” – resoundingly, a disputed fact – also is not a defense underAKS. See 70 Fed. Reg., at 4864; 69 Fed. Reg., at 32,019; Bartlett, 39 F. Supp. 3dat 677. Record evidence shows HCA had Tegra set leases “at the low end of thenew construction market rates.” ECF 122, Exh. 18, at 2982. Even if one couldconclude – against the record – doctors received “fair market value,” a triable issueover low rents within the market range precludes summary judgment.
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Exh. 15, at 6, n.5 (“amount of sale proceeds was highly
uncertain. Tenants would have been highly unlikely to be able
to estimate the sale payment or in what year it would occur”).
Moreover, substantial evidence precludes a finding of fair
market value transactions. Supra, at 10, 20.
< Aggregate rental charges must not be “determined in a manner
that takes into account the volume or value of any referrals or
business otherwise generated between the parties.” Here, the
value of physician tenants – especially those who “benefit
[HCA] economically” – and the expected resulting increase in
utilization, figured prominently in HCA’s consideration. ECF
122, Exh. 18, at 2983; ECF 117, at 29136-37.
Without a safe harbor, it was error to grant summary judgment under AKS.
II. This Court Should Reverse the Grant of Summary Judgment to HCAon Bingham’s Centerpoint Claims under Stark
A. Stark Requires Proof of Neither Intent nor Inducement
It was error for the district court to require relator to prove HCA intended to
induce referrals, and its compensation scheme caused physician tenants to refer
patients. ECF 195, at 39:21-25, 61:16-21, 62:1-4. Neither of these is an element of
Stark. Stark’s rule is clear: the United States will not pay for DHS referred by a
physician with whom HCA has a “financial relationship.” This leaves no room for
inquiries into intent or inducement. 42 U.S.C. §§1395nn(a)(1), (g)(1); 42 C.F.R
§411.353(d); Drakeford, 675 F.3d at 397; Rogan, 517 F.3d at 453.
B. Elements of Indirect Compensation, Defined in Regulations,Apply to Exceptions, Not Relator’s Prima Facie Case
Elements of indirect compensation constitute an exception to Stark liability,
and are not part of prima facie burdens. Compare United States ex rel. Baklid-Kunz
v. Halifax Hosp. Med. Ctr., 2012 U.S. Dist. LEXIS 36304, *12-13 (M.D. Fla.
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2012) (relator need not set out whether relationship is direct or indirect), with
United States ex rel. Singh v. Bradford Reg'l Med. Ctr., 752 F. Supp. 2d 602,
626-27 (W.D. Pa. 2010) (logical structure of Stark and regulations suggest “the
proper order is to first determine whether an indirect compensation arrangement
exists ... before turning to the question of whether an exception applies”).19
Section 1395nn(h)(1)(A) does not distinguish between direct and indirect
relationships. Regulations do, however. See 42 C.F.R. §411.354(c)(2) (defining
indirect compensation arrangements). Below, the court considered the regulation’s
elements to be Bingham’s responsibilities. For several reasons, this was in error.
First, the Stark statute, not a regulation, controls. Regulations may not
narrow the ambit of a statutory proscription, absent a basis in the text. See, e.g.,
John Hancock Mut. Life Ins. Co. v. Harris Tr. & Sav. Bank, 510 U.S. 86, 109
(1993) (regulation at odds with “Congress’ words of limitations” exceeded the
scope of ambiguity in statutory exemption). Here, §1395nn(h)(1)(B) refers to “any
remuneration, directly or indirectly, overtly or covertly, in cash or in kind,” but no
statutory limitation is placed on prohibited indirect compensation arrangements,
other than express exceptions. Indeed, the statute prohibits any non-excepted
remuneration to a referring physician, indicating an intent to prevent limitations.
Other statutory references to “directly” or “indirectly” concern Stark exceptions.
See §1395nn(e)(2), (3) & (5), (i)(1)(C) & (D).
Second, Stark regulations themselves place indirect compensation schemes
in the category of exceptions. Although §411.354(c)(2) defines the arrangements,
nowhere else in the regulations is liability fixed on meeting that definition. Instead,
indirect compensation arrangements are defined for purposes of the exception in
§411.357(p). See Baklid-Kunz, 2012 U.S. Dist. LEXIS 36304 at *12-13.
19Even under Singh, “there is no fair market value analysis at the first stage ofdetermining whether an indirect compensation arrangement exists.” Id.
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Finally, it is against logic to adopt a rule requiring proof of an element as
part of a prima facie burden that negates the possibility of a statutory exception. In
meeting §411.354(c)(2)(ii), relator would need to prove compensation took into
account the value of physician referrals or other business between the parties. To
qualify under §411.357(p), however, HCA must show compensation received by
the referring physician is “not determined in any manner that takes into account the
volume or value of referrals or other business generated by the referring physician
for the entity furnishing DHS” (emphasis supplied). If it were the United States’
burden to establish the “volume or value” standard for indirect compensation
arrangements, then in every case, no exception for indirect financial relationships
under §411.357(p) could ever be found.
C. Substantial Evidence Shows Direct Remuneration, and anUnbroken Chain of Indirect Payments, to Referring Physicians
As set forth in the statement of facts, and recounted under the banner of
AKS, substantial evidence demonstrates HCA created financial relationships
through the Centerpoint MOB, resulting in direct and indirect remuneration to
referring physician tenants. In addition to “burn-off” leases and parking easements,
HCA arranged for referring physicians to get low-end rents, improved offices, use
waivers and huge payments of sale profits. Judge Cooke found this sufficient to
demonstrate an “unbroken chain” of remuneration. ECF 195, at 61:8-11.
D. HCA Took Into Account the Value of Referrals and OtherBusiness Generated by Physician Tenants
On whomever the burden of proof is placed, substantial record evidence
exists for a jury to find HCA took into account the value of referrals and other
business for the hospital. From its planning, HCA intended to fund the MOB “off-
balance sheet,” induce physicians who would “benefit [HCA] economically” to
become tenants, and to thereby meet its hospital utilization projections. HCA
poured money up front into the development, ensuring it would shower referring
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physicians at the other end. From a subjective perspective,20 as Judge Cooke
agreed, HCA funded the MOB because it “wanted to have doctors close by who
would give them referrals.” ECF 195, at 46:8-12.
These facts place HCA’s financial relationships with physician tenants
squarely within Stark’s prohibition. See Drakeford, 675 F.3d at 408-409
(“compensation based on the volume or value of anticipated referrals implicates
the volume or value standard”); Singh, 752 F. Supp. 2d at 622 (“‘anticipated
referrals’ are a proper consideration under the Stark Act”). Contrary to the
argument pressed by HCA, even fixed compensation – which does not “vary” with
the volume referrals – are implicated in Stark, when considerations otherwise
reflect their value. See Drakeford, 675 F.3d at 409; Singh, 752 F. Supp. 2d at 621.
E. HCA Had Knowledge of the Financial Relationships It Created
HCA not only knew about the financial relationships with physician tenants,
it knew the financial relationships were subject to Stark and the CIA. HCA’s own
lawyers advised against having physician investors, and yet, HCA real estate
executives went forward with the Centerpoint MOB scheme. Under these facts, a
jury could find HCA had the requisite scienter to violate Stark.
F. HCA is Unable To Establish a Stark Office Space Exception
As with the AKS safe harbor, HCA is unable to find refuge in the Stark
exception for “rental of office space” under §1395nn(e)(1)(A). Payments pursuant
to cash flow agreements were not for “use of premises;” were not “pursuant to a
lease set out in writing, signed by the parties,” were neither “set in advance” nor
“consistent with fair market value;” and were “determined in a manner that takes
into account the volume or value of any referrals or other business generated
between the parties.” On its face, the Stark exception is not available to HCA.
20As noted in agency commentary, declining “to revise the definition of ‘indirectcompensation arrangement’” and use an “objective test,” under Stark the subjective “intent of the parties” controls. 73 Fed. Reg. 48434, 48696.
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III. This Court Should Reverse the Dismissal of Bingham’s AventuraClaims Pleaded in the Second Amended Complaint
A. Bingham’s Second Amended Complaint Satisfies Rule 9(b)
In his second amended complaint (ECF 104), relator satisfies requirements
of Rule 9(b). Bingham alleges the details of HCA’s scheme to remunerate referring
physician at Aventura, by subsidizing the MOB development through Greenfield.
HCA uses Greenfield for the same scheme on other HCA hospital campuses, and
this was exposed in Bingham’s earlier successful qui tam suit in Tennessee. HCA
targeted “A-list” physician groups, and funded the MOB through sub-market value
transfers, parking easement, sponsorship, and its own lease for non-existent space.
By HCA’s own admission, a reason was to “fill [the MOB] full of physicians who
refer patients to the hospital.” Bingham alleges HCA passed profits to physician
partners of Greenfield when the building sold for $25.4 million in 2007. Further,
HCA paid physician tenants direct remuneration in the form of free parking rights
and benefits, below market rents and improvements (which varied with the volume
of referrals), common area maintenance, and use waivers.
Bingham states dates, location and substance of the fraud, satisfying the
more “nuanced, case-by-case approach” under Rule 9(b) followed by the Circuits,
including this Court. See Health Mgmt., 591 F. App’x 693 at 704.21
21See United States ex rel. Duxbury v. Ortho Biotech Prods., L.P., 579 F.3d 13, 30(1st Cir. 2009); United States ex rel. Joshi v. St. Luke’s Hosp., Inc., 441 F.3d 552,556-557 (8th Cir. 2006); United States ex rel. Bledsoe v. Community HealthSystems, 501 F.3d 493, 506 (6th Cir. 2007); United States ex rel. Grubbs v.Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009); United States ex rel. Lusby v.Rolls-Royce Corp., 570 F.3d 849 (7th Cir. 2009). Twice, a more exacting standard– rejected by this Court, see Clausen, 290 F.3d at 1312 & n.21 – was presented tothe Supreme Court, with the United States weighing in against it. See Brief of Solicitor General in United States ex rel. Nathan v. Takeda Pharmaceuticals NorthAmerica, Inc., No. 12-1349, at 10, 14-16 (rigid rule would “hinder the ability ofqui tam relators to perform the role that Congress intended them to play in thedetection and remediation of fraud against the United States”).
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B. The District Court Erred When It Ignored Facts Alleged inPlaintiff’s Second Amended Complaint
Applying Rule 9(b), no court other than Judge Cooke has ever ignored
pleaded facts because information was learned through discovery. Some courts
have declined to relax Rule 9(b) to allow discovery on a deficient complaint, but
those cases involved pre-discovery dismissals. E.g. United States ex rel. Atkins v.
McInteer, 470 F.3d 1350 (11th Cir. 2006); Clausen, 290 F.3d at 1313; United
States ex rel. Karvelas v. Melrose-Wakefield Hosp., 360 F.3d 220, 228-31 (1st Cir.
2004). Courts that have considered the argument have rejected it.
For example, in United States v. Omnicare, Inc., 2013 U.S. Dist. LEXIS
75696, *17-18 n.9 (N.D. Ga. 2013), the court expressly addressed this Court’s
language in Atkins, but held neither “Atkins nor any other authority cited ... holds
that a plaintiff is precluded from pleading facts that it already has obtained in
discovery.” As a result, “any allegations in the Third Amended Complaint based on
facts learned in discovery in this case may, in this case, be considered.” Id.
In Remmes v. Int’l Flavors & Fragrances, Inc., 453 F. Supp. 2d 1058, 1071-
72 (N.D. Iowa 2006), the court noted there is “no prohibition on the use of the
material unearthed during discovery,” and Rule 15 “contains no restriction on the
use of information garnered through discovery in framing an amendment.” Id.
Therefore, in the absence of any legal authority which would permitthe court to selectively exclude those portions of the Second AmendedComplaint which were added following discovery and then proceed toanalyze the legal sufficiency of plaintiff Remmes’s fraudulentconcealment claim based on his pre-discovery knowledge andallegations, the court will proceed to conduct its analysis of theSecond Amended Complaint without redaction. [Id.]
See also United States ex rel. Knapp v. Calibre Sys., 2012 U.S. Dist. LEXIS 63456
(C.D. Cal. 2012) (relator may amend with information learned through discovery).
“Allowing parties to amend based on information obtained through
discovery is common and well established.” Fru-Con Constr. Corp. v. Sacramento
Appellant’s Opening Brief – Page 35
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Mun. Util. Dist., 2006 U.S. Dist. LEXIS 94421, at *15-16 (E.D. Cal. 2006). See
M.H. v. Cty. of Alameda, 2012 U.S. Dist. LEXIS 168412, at *8 (N.D. Cal. 2012)
(“Courts routinely allow parties to amend their pleadings after new information
comes to light during discovery”). Indeed, other courts in the same district permit
such amendments. E.g., Bryson v. Berges, 2015 U.S. Dist. LEXIS 33517 (S.D. Fla.
2015); Maale v. Kirchgessner, 2011 U.S. Dist. LEXIS 18506 (S.D. Fla. 2011).22
Here, Judge Cooke declined to stay discovery, requiring relator – suing on
behalf of the United States – to redouble pre-trial efforts on a short time-line.
Dismissing the first amended complaint, the court acknowledged Bingham had
additional information, and narrative, to add, and it granted leave to amend, twice,
over HCA’s objections. Whether or not leave should have been granted is a matter
under Rule 15, not Rule 9(b). See United States ex rel. Rigsby v. State Farm Fire &
Cas. Co., 794 F.3d 457, 466 (5th Cir. 2015) (“We do not believe that Rule 9(b) is
the appropriate analytical prism through which to view the issues”). In this case,
the court below granted Bingham the Rule 15 relief he requested, and HCA filed
no cross-appeal of the district court’s Rule 15 rulings.
No basis exists for the court’s ruling in the text of the False Claims Act. In
its order (ECF 202), the court conflated elements for original source status – an
exception to the public disclosure bar, §3730(e)(4) – with Rule 9(b) requirements.
Other than cases of public disclosure, relators need not independently know of the
fraud to qualify as a “person” authorized to initiate the action under §3730(b).
Public disclosure is not an issue here. Indeed, HCA made every effort to conceal
MOB-related benefits made available to referring physicians.
22Some courts consider the limits of what a relator knew when the initial complaintwas filed, for purposes of determining subject matter jurisdiction. See UnitedStates ex rel. Newsham v. Lockheed Missiles & Space Co., Inc., 190 F.3d 963, 969(9th Cir. 1999); United States ex rel. Branch Consultants, L.L.C. v. Allstate Ins.,782 F. Supp. 2d 248, 262-64 (E.D. La. 2011). That rationale does not apply here.
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Absent a basis in statutory text, courts refuse to apply special interpretations
of the rules in qui tam litigation. See United States ex rel. Roberts v. QHG of Ind.,
1998 U.S. Dist. LEXIS 23512, at *20-23 (N.D. Ind. 1998) (“Congress establishes
qui tam provisions for the very purpose of ‘enlisting private parties … to champion
the government’s case’; to restrict discovery based upon relator’s status “would
seriously weaken the qui tam provision”); United States ex rel. Wang v. FMC
Corp., 975 F.3d 1412, 1416-17 (9th Cir. 1992) (declining to apply bar to evidence
publicly disclosed in qui tam litigation, as relators “would have little choice but to
waive their right to discovery” to the detriment of the government’s interest under
the Act), overruled on other grounds, United States ex rel. Hartpence v. Kinetic
Concepts, Inc., 792 F.3d 1121, 1127-28 (9th Cir. 2015) (overturning Wang’s “third
prong,” like “many of our sister circuits” holding it impermissible to “graft[] onto
the statute a requirement nowhere to be found in the statute’s text”).
Nor does a basis exist in the purposes of Rule 9(b). Those purposes consist
of “alerting defendants to the precise misconduct with which they are charged and
protecting defendants against spurious charges of immoral and fraudulent
behavior.” Atkins, 470 F.3d at 1359. They do not include a formalistic test of
relator’s ability to plead details on his first try. Indeed, that is why leave to amend
under Rule 15 is freely given, and why Judge Cooke granted Bingham leave.
To the extent Rule 9(b) is to ensure adequate notice, there is no logic to
denying relator use of information obtained through discovery. HCA certainly
knew the nature and significance of its own discovery responses, and Bingham
should be permitted to use that information to alert HCA of his claims. In fact,
discovery often provides the means by which plaintiff gives notice to defendant,
and in this case, Bingham answered dozens of pages of interrogatories, produced
documents, and sat for deposition regarding Aventura, all of which was sufficient
to advise HCA of the nature of his claims. See ECF 145.
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HCA cannot claim it needs protection under Rule 9(b) from an inappropriate
“fishing expedition” for new claims. Because of his unique status, Bingham
unearthed a secret, consistent scheme by HCA, designed and implemented from its
headquarters in Tennessee, to pass unlawful remuneration to referring physicians
through third party developers and multiple locations. Bingham successfully
prosecuted one action against HCA at Parkridge, and he mustered substantial
evidence to survive summary judgment on Centerpoint claims. His Aventura
allegations – covering core facts he pleaded initially – are based on detailed and
particularized data. Under these circumstances, it cannot be said Bingham has
brought a “strike suit.” Rigsby, 794 F.3d at 465-67. It is not a “fishing expedition”
with the catch already on the hook.23
Finally, it was incorrect for the court below to assume additional facts
pleaded in the second amended complaint were learned through discovery. Even if
Bingham was barred from using HCA-produced records, all of the essential
elements of Bingham’s Aventura claims could have been pleaded. Indeed, as
demonstrated in the chart on the following page, each allegations in ECF 104 that
was over-redacted by Bingham’s counsel for other purposes in ECF 105, finds a
parallel allegations in ECF 14, his first amended complaint.
For each of these reasons, the district court erred as a matter of law when it
expressly disregarded Bingham’s second amended complaint allegations.
Determining this appeal under Rule 9(b), the Court should consider all facts
pleaded by Bingham, and find them sufficient to survive the motion to dismiss.
23Concerns over such expeditions are reduced by the discovery rule amendments in2016, anyways. See United States ex rel. Customs Fraud Investigations, LLC v.Victaulic Co., 839 F.3d 242, 258-59 (3d Cir. 2016). With these added protections,courts should look more to Rule 26, than Rule 9(b), in deciding where the balancelies. In this case, worry over HCA’s discovery burden is absent, as it had and tookevery opportunity to object to Bingham’s discovery.
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SAC (ECF 104) FAC (ECF 14)
A. HCA subsidized MOB ¶¶ 123-154,
136-137 (discussing easement).
Subtitle 1 “Subsidy through Parking
Easement” ¶¶106-114; ¶135.
B. HCA compensated physicians with
parking rights. ¶¶ 178 - 197.
¶108 non-exclusive cross-parking
agreement.
C. HCA compensated doctors through
below-market rents. ¶¶198-205.
¶¶5, 6 Valuable inducements including
laundering funds through developer on
tenant lease terms
D. HCA compensated physicians by
requiring lower rents for higher
referrers. ¶¶206-210
¶6 4th bullet: “Control of the
physician-tenant leases”
E. HCA directed higher improvement
allowances for higher referrers.
¶¶211-220
¶¶ 138 -139 (explaining allowance
subsidy directly paid by HCA).
F. HCA directly paid a portion of
tenants’ common area maintenance.
¶¶221 –233.
G. HCA compensated physicians
directly with valuable use permissions.
¶¶ 234-246.
¶5 …Valuable inducements offered
and paid to referring physicians ….
and other advantageous agreements…
¶6 …such as requiring … lease
provisions that provided certain
benefits for physician-tenants.
Aventura Hospital Claims ¶¶ 275-276 Aventura and Centerpoint hospitals
claims. ¶¶167 et seq. Aventura
Medicare Claims ¶¶171-174, 184, and
ECF 14-7.
HCA designed, implemented and
concealed the scheme. ¶¶ 308 - 316.
¶¶ 200-205. Also, ¶ 204.
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CONCLUSION
The Court should reverse the judgment of the district court and remand for
further proceedings.
. Respectfully submitted,
Dated: April 10, 2017 Jonathan Kroner Law OfficeLaw Office of Jeremy L. Friedman
By: /S/Jeremy L. Friedman Jeremy L. Friedman
Attorney for qui tam plaintiff and appellantThomas Bingham
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CERTIFICATE OF COMPLIANCE
1. This brief complies with the type-volume limitation of Federal Rule of
Appellate Procedure 32(a)(7), because it contains 12,898 words,
excluding the parts of the brief exempted by Federal Rule of Appellate
Procedure 32(a)(7)(B)(iii).
2. This brief complies with the typeface requirements of Federal Rule of
Appellate Procedure 32(a)(5) and the type style requirements of
Federal Rule of Appellate Procedure 32(a)(6) because this brief has
been prepared in a proportionally spaced typeface using WordPerfect
in 14 point Times New Roman.
Dated: April 10, 2017
/S/Jeremy L. FriedmanJeremy L. Friedman
CERTIFICATE OF SERVICE
I hereby certify that on April 10, 2017, I electronically filed the foregoing
with the Clerk of the Court for the United States Court of Appeals for the Eleventh
Circuit by using the CM/ECF system. I certify that all participants in the case are
registered CM/ECF users and that service will be accomplished by the CM/ECF
system.
/S/Jeremy L. FriedmanJeremy L. Friedman
Appellant’s Opening Brief – Page 41
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